How canceling GSP for India would benefit China

A key finding of the recent report on GSP termination impacts was that over 30% of companies would look to source more from China if GSP benefits went away. That was about the same share of companies reporting they would source more from any of the approximately 120 remaining GSP countries, and much higher than those would source more from non-China, non-GSP countries (NAFTA, EU, Japan, etc).

While the President tweeted yesterday about raising tariffs on China to create additional negotiating leverage, terminating GSP for India would undermine it. For some products such as luggage, simultaneously ending GSP for India and raising List 3 tariffs from 10% to 25% would make Chinese products more competitive compared to India, not less.

That’s because there is significant overlap between products imported from India under GSP and Chinese imports targeted by the Administration for Section 301 tariffs. More than 75% of India’s GSP imports are included on one of the Section 301 lists. About 65% of them are on “List 3” that could be subject to higher tariffs as soon as Friday, as shown below. (For GSP countries excluding India, only 55% of imports are included on List 3.)

Given the head-to-head competition between India and China on many of these products, ending GSP for India would have the same effect as lowering tariffs on China. And we can see that the Administration’s tariffs on China do seem to have impacted both imports from India under GSP and from China so far in 2019.

In the first two months of 2019 (most recent data available), GSP imports from India are up significantly for products on the Section 301 lists, but down slightly for products where China doesn’t face new tariffs. It is the opposite for China: imports are down significantly for products facing new tariffs, and up slightly for those that don’t.

New tariffs on China presumably would amplify these trends – but new tariffs on India would mitigate them. That puts the Administration at a crossroads: is increased leverage on China or India a higher priority? Because the data show you can’t act raise tariffs on one without helping the other.